Introduction This is an example of the timeline and key issues to be aware of during the course of your home purchase. The amounts used for the deposits reflect customary practices in Massachusetts. The number used for closing costs, is likewise a reflection of a typical amount of total closing costs, although this number may vary widely depending on the terms of your mortgage loan and other factors.
1. January 1st : Offer to Purchase Accepted. The Offer to Purchase is a legally binding contract that your agent will draft and submit, proposing the essential terms of the deal, generally including:
a. Price
b. Closing Date
c. Deadline for Execution of Purchase and Sale Agreement (P&S)
d. Mortgage Contingency Date (recommend 4 weeks from P&S Deadline)
e. Inspection Contingency, if any
f. Condominium governing document review contingency, if applicable
When the seller accepts and signs the proposed Offer to Purchase, you will put $1000 in escrow with the seller’s agent as an “earnest money deposit (EMD).” This deposit could be forfeited if you do not fulfill your obligations under the Offer to Purchase- so you should make sure you are ready to go forward and that you understand the terms of the Offer fully.
You will need a lender’s Pre-approval to submit a well qualified Offer.
2. January 7th(Week 1): Purchase and Sale Agreement Signed. During the week between execution of the Offer and the P&S, you will likely schedule a home inspection by a licensed professional, and your agent will conduct any further negotiations related to the results of the inspection. If the inspection reveals unforeseen repair issues, your agent may secure a price concession from the seller, often in the form of a credit to be applied at closing to cover some or all of your closing costs. Assuming both seller and buyer agree on any inspection-related changes to the terms of the Offer, the P&S Agreement will be executed. At this point you will deposit the balance of your 5% EMD into escrow- for example: a $500,000 price would entail the $1,000 deposit at the offer stage, and then $24,000 at execution of the P&S for a total EMD of $25,000 held in escrow by the seller’s agent. These funds will be credited to you at closing. The lender will order the Appraisal, for which you will prepay approximately $300-$700. The Appraisal report, which should be complete within 2 weeks after signing the P&S, will establish an estimated fair market value (FMV) for the property. IF this FMV is less than the agreed upon purchase price, then the mortgage lender will not approve the loan, and we would then work on alternatives- either, a) terminate the transaction pursuant to the Mortgage Contingency clause in the P&S, b) lower the loan amount, or c) re-negotiate the purchase price.
3. February 7th(Week 5): Mortgage Contingency / Commitment Letter Date. Approximately four weeks after signing the P&S, we reach the watershed moment of the transaction, assuming that you plan to obtain a mortgage loan. The Mortgage Contingency is a term of the P&S that allows the buyer to terminate the transaction if their lender has not submitted a satisfactory “Commitment Letter.” The commitment letter is also known as a “Conditional Approval” – meaning that the lender has approved your loan to close on a date certain, provided that any remaining conditions are satisfied prior to closing. If the lender has not yet prepared a Commitment Letter by this deadline, then we seek to either extend the deadline, or terminate the transaction, and retrieve your EMD.
If the letter has been prepared and delivered, then we must determine whether any and all outstanding conditions are reasonably within your control to satisfy. For example, two common conditions are: verification of ongoing employment and verification of the source of liquid funds (i.e., cash) to be used to close the purchase. These are typically routine administrative matters that would be reasonably with the borrower’s control to satisfy. Again, if the Commitment Letter indicates that the lender’s commitment to lend is conditioned upon matters that may be beyond the borrower’s control to satisfy, then we would work to either extend the Mortgage Commitment deadline, or terminate the deal. This is also the juncture where we would work to either terminate or renegotiate the deal if the Appraisal report showed an FMV of less than the agreed upon purchase price.
4. February 21st(Week 7): Closing. Assuming that the Commitment Letter was satisfactory and we have moved forward to closing, we will meet on the day set for closing, and you will sign the mortgage and related lender documents. You will need to bring a treasurer’s check (bank check) for the balance of funds owed to close. The amount of this check will basically equal: (Purchase Price + Closing Costs) – (Loan Amount + EMD). The above example, assuming total closing costs of $7,000 and a $450,000 loan (10% down), would require a balance due at closing of $32,000.00.
The seller will deliver the deed & keys to the property and the deed will be recorded at the Registry of Deeds. Technically, title to the property passes to you when the seller delivers the deed with the intent to convey title to the premises to you. In practice, the transaction is not final until the deed has been recorded. The closing attorney will hold the deed in escrow until your purchase funds & the mortgage funds have both cleared, and then record the deed, disburse the net proceeds of the sale to the seller, and pay off any outstanding mortgages. Once the deed is recorded, you may move into your new home.